Sociedade Anonima

A joint-stock company (“sociedade anonima”, “S.A”).

The beauty of the SA is that it has clear structures governed by the civil law: there are shareholders, there is a board of elected representatives of shareholders (“conselho administrativo”), and then there are managers, supposedly executing the general strategy deliberated and decided by the board.

But the SA is more complex and expensive to set up and maintain afterwards. It is not easy to find an accountant who is familiar with the requirements of a SA, and he will certainly charge you more for it. There are more reporting and auditing requirements. As a consequence, the SA is an appropriate choice for larger business ventures where there are different investors who plan to appoint managers to run the project. It may also be worth considering in the case of an entrepreneur starting a company with limited resources but with a clear view of seeking investors soon, especially professional investors. They may insist on the SA structure. Remember that everything is complicated here, and changing a Ltda into a SA can be a major headache, not only for fiscal reasons but also because many operating licenses may have to be changed, renewed or requested again.

However, if the venture fails, the entrepreneur risks sitting on a “dead” SA which will cost him money and work for quite some time, as it can take years to close a company here in Brazil.

In a SA, managers and common shareholders are less likely to respond with their private assets to tax, labor or other liabilities of the company. But note that I said “less likely”, not “unlikely”. There is always the sword of such liabilities hanging over executives and common shareholders. This has apparently caught an increasing number of executives by surprise who were hired by larger Brazilian companies (SAs), considering themselves as professional managers and hired employees, not as partners or investors; then, some tax or labor liability from the past showed its ugly face, and those executives found themselves made responsible as well. This has been reason for growing concern among executives here, and I have heard that there are even liability insurances being offered that the executive can insist on being paid for him.

Sociedade em conta de participação

There is another option sometimes chosen: “sociedade em conta de participação“. Here, one partner assumes the responsibility of running the business in his name, and other partners only invest money and do not appear as partners in official registries. This structure is common in business projects where several companies make a joint bid in a large government tender, or in real-estate development projects where many people buy a share which in the future will become a piece of land or a house within the project. It makes sense that in projects like these, you would not want to register every future house-owner as a business partner with tax authorities or the chamber of commerce. You rather appoint one person or one company who manages the whole project in his name. Note that the constitution of such a partnership is also done through a contract where all the managing partners and the investors sign (and therefore document their idendity). This contract does not have to be registered anywhere and can stay among this group of people.

Now some smart people have come up with the idea of using the “sociedade em conta de participação” for the purposes of starting a regular company, thereby appointing only one person as official manager and partner, and keeping other partners and especially investors out of sight and therefore, supposedly, less exposed to tax and labor risks. But there are several caveats. For starters, the chamber of commerce would not accept its charter of association as a legitimate contract to found a normal limited partnership. As a consequence, such as company can not participate in other companies, and I am not even sure whether such a partnership can apply for a tax number (CNPJ) without which live is complicated here. And if the partnership and its managing partner should be executed for tax or labor liabilities, there is always a risk that tensions among its members arise and one “bad apple” may bring the charter of association to public knowledge.